Is Invoice Discounting Right For My Business?
If your business invoices clients on credit terms and has established credit control procedures in place, then invoice discounting could be for you. If cash flow holds back your otherwise profitable business then you could benefit by investigating invoice finance.
Companies with a turnover in excess of £250,000 tend to be most suited to confidential invoice discounting. Smaller companies may not have robust credit control systems in place and may benefit more from invoice factoring.
By receiving payment almost as soon as your invoice is raised, everything from payroll to paying suppliers becomes simple. The revolving funding line is designed to grow with your business and is naturally in tune with your busy periods.
When compared to other business funding options such as overdrafts, business loans and peer to peer lending, invoice finance is often the most flexible option. Our lenders offer a 100% confidential service, meaning your customers will not know that you are using the facility.
Invoice Discounting in Practice
AAA Fabrications is looking to improve their cash flow after taking on a large contract with a new customer. As such, the Managing Director, Fred, has taken out a confidential invoice discounting facility with the invoice discounting lender.
Under the terms of their agreement, the lender will release 80% of each invoice immediately, this is known as the ‘advance percentage’ or ‘prepayment percentage’.
The facility is live and AAA Fabrications has issued their first invoice for £20,000, meaning £16,000 is advanced by the lender immediately. In order to secure the advance, Fred must upload the invoice to the lender’s online portal, which he does.
30 days later, the customer settles the invoice using the bank details on the invoice. The account is a trust account, which the lender holds for the client, in the client’s name. Fred’s customer will be unaware that the account isn’t the normal business account.
Once the invoice is paid, the lender would then pay the rest of the money over to AAA Fabrications, minus any fees and interest. The fees payable would be the discount fee and any service charge, as per the agreement.
In this example, Fred would expect to pay around £500-£600 for the money, meaning the remaining £3,500-£3,600 would be paid to him.
The Benefits of Invoice Discounting
Invoice discounting can have a number of benefits for businesses, including the following:
- This type of borrowing is often far more cost-effective than other funding options for cash flow management.
- Business growth can often be accelerated due to improved cash flow.
- Your cash flow will improve as you will have almost instant access to the funds due, without having to wait for payment from the customer.
- Invoice discounting can be completely confidential, meaning your customers will be unaware you are using it.
- You manage your own sales ledger, maintaining credit control processes and keeping control in-house.
- The products tend to be very flexible. As your business grows, the cash available in your facility will grow alongside it.
- Improved cash flow will result in you being able to pay your creditors sooner, often meaning you can negotiate price reductions as a result.
Call Us Now Or Enquire Online
At ABC Finance Ltd, we know the invoice finance market fully and have relationships with all the top lenders. By working with us, you can access the whole market through one simple, quick enquiry.
We manage the entire process and you can leave the whole thing to us while we negotiate the most suitable terms for you. Enquire online now or call us on 01922 620008 to get a free personalised invoice finance quote.